Chicago’s real estate industry is pushing back against the anti-gentrification ordinance that took effect this month, with one group launching a letter-writing campaign against it.
Landlords and brokers are frustrated with the right of first refusal granted to tenants in some Northwest Side neighborhoods, which allows tenants to band together to purchase their buildings ahead of any outside investor.
The Chicagoland Apartment Association and the Neighborhood Building Owner’s Alliance said the right of first refusal will delay the sale of buildings, causing problems for owners who may need to sell quickly, and could have a cooling effect on investment in the area.
“This ordinance punishes owners of affordable housing, devalues their property, and makes it harder to invest in neighborhood housing,” said Mike Glasser, president of the Neighborhood Building Owner’s Alliance, which launched a letter-writing campaign against the ordinance.
Glasser’s organization, an alliance of 11 landlord associations, put up a webpage with forms for contacting alderpeople, along with information about the ordinance.
It’s also asking members to share personal stories of how the ordinance affected them if they are owners in the area. In addition to legislative tactics, the group is exploring ways to challenge the ordinance in court, according to comments made in an October conference call.
They are looking for examples of sellers being harmed by the requirement to give renters in larger buildings a 60-day notice of intent to sell and another 90 days to form a tenant association to decide if they want to buy the building. This timeline is shorter for buildings of four units or fewer, where the total timeline is 45 days.
The ordinance was crafted to address documented displacement and gentrification faced by residents in the communities covered by the ordinance, said Kelvin Gensollen Arellano, housing organizer with a community group called Palenque LSNA. The industry’s arguments, on the other hand, are “hypothetical,” he said.
The ordinance is a pilot program that will sunset at the end of 2029 unless renewed. The program applies to parts of Logan Square, Avondale, Hermosa, Humboldt Park and West Town as well as Pilsen. It is meant to stem exploding housing costs in areas that began gentrifying rapidly about 10 years ago, when developers started tearing down two- and three-flats and replacing them with luxury homes along the 606 trail. The area lost 6.1 percent of its two- to six-flat buildings between 2013 and 2018, according to the DePaul Institute for Housing Studies.
In response to the loss of smaller multifamily buildings, the ordinance also allows for the construction of two-flats by right in any areas within the ordinance’s boundaries that are zoned for single-family. Finally, the measure increased demolition surcharges from $5,000 per unit or $15,000 per building to $20,000 per unit and $60,000 per building, whichever is higher.
‘Unintended consequences’ and ‘trojan horse’ arguments
Andy Friedman, a multifamily broker with Kiser Group, said owners and developers will just find ways around portions of the ordinance designed to preserve existing affordable housing and protect against displacement, bringing “unintended consequences” to tenants and sellers.
For example, sellers will likely move to vacate buildings before selling as a way of skirting tenant rights, meaning less available housing in the area for that period of time, Friedman said.
The ordinance prohibits owners from displacing tenants after purchasing a building, requiring them to keep inherited tenants for 6 months or until the end of their lease, whichever is longer. That could pose a challenge for buyers looking to rehab a property and sellers may want to avoid the elongated timeline of granting tenants the right to first refusal. Vacating a property before bringing it to market may become a more attractive option, said Compass broker Mario Greco.
The increased demolition fees may hurt owners and sale prices in the area as buyers will take that cost off the top of any offers they make, Friedman said. Though he has not seen evidence of a drop in investment or average sale price yet, Friedman said the ordinance has “definitely changed the attitude” of developers toward the area.
With so much of the area’s affordable housing already bought up by outside investors, Gensollen Arellano said most of the money from multifamily sales was not circulating or being reinvested in local communities anyway. Revenue from the surcharges will go to the Chicago Community Land Trust to support the “construction, rehabilitation or preservation of affordable housing” in the area, according to the ordinance. Developers who plan to reserve at least half of proposed units for families who earn up to 60 percent of the area’s median income are exempt from the increased surcharges.
The Chicago City Council amended the ordinance in response to concerns from the industry in December, adding the sunset date, delaying implementation of the right to first refusal until March 1 and requiring tenants to provide proof of financial backing to move forward in purchasing a building. The Chicagoland Apartment Association supported these amendments, but it would prefer for the council to overturn the measure altogether, said the organization’s executive vice president Mike Mini. It’s unlikely there is any political will to do so given strong support for the ordinance among aldermen, he said.
“I’m certain that the evidence is going to show that this is not an effective ordinance, and perhaps then there’ll be an opportunity to revisit this,” Mini said. “If there’s an opportunity to overturn it, we certainly would participate in that.”
Meanwhile, Palenque LSNA, which worked to get the ordinance passed last fall, has launched an education campaign of its own, canvassing Northwest Side neighborhoods to inform tenants about their rights.
“This is the first step,” Gensollen Arellano said. The second step has been talking with tenants about the kinds of “legal, logistical and financial support” they might need in order to execute their rights, so that Palenque and others can help bridge that gap, he said.
Brokers who work in the area said they have yet to see an example of tenants organizing to match an offer from a third-party buyer to purchase their building, and Mini said he doubts the likelihood of it happening, particularly in larger buildings.
The timeline afforded to tenants to organize represents an unnecessary delay that will disadvantage small, live-in owners who may have more logistical and timing constraints around buying a property if they are taking out a mortgage, said NBOA member Joe Wilcox, a property manager and broker.
The ordinance states that 75 percent of occupied units should be in agreement in order for tenants to move forward with buying their building. That’s more of a challenge in larger buildings, but Palenque LSNA is working to provide support to tenants on a case-by-case basis. Tenants can also opt to transfer their right of first refusal to a third-party organization that is committed to keeping the building affordable, Gensollen Arellano said.
Industry players’ arguments that reforms will end up hurting renters or local, small-time landlords are often a “trojan horse” for less community-minded concerns, he said.
“Most of the people who are purchasing these two-flats and three-flats are not families. Most of them are very big companies that are trying to resell them at a very big price and de-converting these units into luxury homes,” he said. “It’s a rational period of time to ask people to wait 30 days. It’s not like the entire world will end during this period of time.”
But Mini and others in the industry maintained that if the city really wanted to protect affordable housing in the area, they would remove restrictions on sellers, open up zoning and make it easier to increase the overall supply of housing.
“The ordinances in the city of Chicago are such that it makes it very, very difficult to operate a rental property, and that puts upward pressure on rents. Costs are skyrocketing. Insurance is going up. Property taxes are high. Utility charges are high. It’s difficult to get financing,” Mini said. “There’s just a lot of headwinds in the apartment industry right now, and until we change our policies to make it easier to build and maintain properties, we’re going to continue to have this problem.”
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Real estate players panicked by anti-gentrification measure
Politics
Chicago
Anti-gentrification ordinance changes fail to satisfy landlord group
